UNITED STATES: SEC Adopts Amendments to Modernize Shareholder Proposal Rule

Thursday September 24 2020

On 23^rd September 2020, the Securities and Exchange Commission (SEC) announced that it has voted to adopt amendments to modernize its shareholder proposal rule, which governs the process for a shareholder to have its proposal included in a company’s proxy statement for consideration by all of the company’s shareholders. The principal requirements for: (1) initial inclusion in the proxy statement — the amount and length of ownership of the proposing shareholder — and (2) for subsequent resubmission if the proposal is not approved — the amount of support from other shareholders — have not been substantively amended since 1998 and 1954, respectively.

The amendments will facilitate engagement among shareholder-proponents, companies and other shareholders, including preserving the ability of smaller shareholders to access the proxy statements of the companies in which they have demonstrated a continuing interest.  Under the rules, any shareholder may submit an initial proposal after having held $2,000 of company stock for at least three years, or higher amounts for shorter periods of time.  The rules also provide for a transition period so that shareholders who are currently eligible at the $2,000 threshold will remain eligible to submit a proposal for inclusion in the company’s proxy statement so long as they continue to maintain at least their current holdings through the date of submission.

In updating the initial submission criteria, the amendments help ensure that a shareholder’s ability to have a proposal included in a company’s proxy materials—and thus to draw on company resources and to command the time and attention of the company and other shareholders—appropriately takes into consideration the interests of not only the shareholder who submits a proposal, but also the other shareholders who bear the costs associated with reviewing, considering and voting on such proposals in the company’s proxy statement.

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